Mid-Morning Look: November 27, 2019

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Mid-Morning Look

Wednesday, November 27, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-20.85

0.07%

28,101

S&P 500

4.59

0.15%

3,145

Nasdaq

31.66

0.37%

8,680

Russell 2000

6.93

0.43%

1,631

 

 

U.S. equities are mixed on this light volume day ahead of the Thanksgiving Day holiday tomorrow, with the tech heavy Nasdaq Composite rising behind better earnings from ADSK, BOX and a 7th straight gain for biotech stocks (52-week highs), but overall news sparse with no trade talk headlines with China overnight. Economic data was plentiful with a better GDP reading at 2.1% vs. est. 1.9%; core PCE (inflation) at 2.1% below the 2.2% estimate and durable goods rise 0.6% vs. est. down (-0.9%); jobless claims also better at 213K vs. est. 221K. Pending home sales fell unexpectedly while Chicago manufacturing data was better than last month, but missed estimates. Most data points better than expected prompting sell-off in Treasuries and defensive assets. Stocks opened at record highs a day after U.S. President Donald Trump that Washington and Beijing were in the final throes of inking an initial trade deal. In industrial space Deere (DE) with better quarterly results, but a lower outlook and revenue guidance weighed heavily on shares of farm equipment stocks. The dollar gained on the economic reports while oil prices slip following bearish weekly inventory data.

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar index (DXY) nears 2-week highs around 98.44 before paring gains while the Euro slides vs. the U.S. dollar, down -0.2% (falling below the 1.10 level – weakest in about 2-weeks). The dollar near the highs vs. the safe-haven Japanese yen above 109.25 (0.2%), with risk on attitude still in place for major averages. Speaking of, both gold and Treasury prices slide given the better-than-expected economic data points while oil prices are down slightly followed mostly bearish weekly inventory data from the EIA and API.

 

Economic Data

·     Gross Domestic Product (GDP) second estimate for Q3 reported at up 2.1%, better than the 1.9% estimate after rising 2% last quarter; personal consumption stronger than expected, rising 2.9% vs. est. 2.8%, but lower than 4.6% growth prior quarter; the GDP price index rose 1.8% in 3Q after rising 2.4% prior quarter and core PCE QoQ rose 2.1% in 3Q (est. 2.2%) after rising 1.9% prior

·     Durable Goods Orders for October rise an unexpected 0.6%, topping the estimate for down (-0.9%) while durable goods new orders revised down to -1.4% for Sept. from -1.2%; new orders ex-transportation rose 0.6% in Oct. after -0.4% fall and ex-defense rose 0.1% in Oct. after -1.8% fall

·     Weekly Jobless Claims fell 15K to 213K, below the 221K estimate while prior week claims revised up to 228K from 227K; continuing claims fell 57K to 1.640M in the week ending Nov. 16; the 4-week moving avg fell to 219,750 from 221,250 prior week (previous 221,000)

·     Chicago PMI for November better than estimates, but below last month reading as was reported at 46.3 vs. est. 47.0 (after 43.2 reading last month)

·     Pending home sales fell (-1.7%) MoM in October vs. est. for up 0.2%; with gains in the Northeast up 1.9%, but declines in Midwest, South and West

·     Personal Spending for October rose 0.3% MoM, in-line with estimates while personal income in Oct. was unchanged missing the est. 0.3%; PCE prices rose 0.2% MoM and 1.3% YoY while core prices rose 0.1% MoM and 1.6% YoY; the compensation rose 0.4% in Oct. and the savings rate at 7.8% in Oct. vs 8.1% last month

 

 

Macro

Up/Down

Last

 

WTI Crude

-0.11

58.30

Brent

-0.12

64.17

Gold

-4.90

1,462.40

EUR/USD

-0.0021

1.100

JPY/USD

0.23

109.27

10-Year Note

0.013

1.755%

 

 

Sector Movers Today

·     Retailers; GES shares declined after mixed Q3 earnings/forecast, which both featured better EPS but weak sales/Americas retail revenue decreased 4.9% in U.S. dollars and 4.5% in constant currency during the quarter/guides year op margin view to 5.4%-5.6% from 5.3%-5.6% but slightly lowers year revs ex-FX to up 5.7%-6%; DKS was upgraded at Evercore/ISI and Barclay’s following earnings results yesterday; Citigroup noted PVH said it is looking for acquisition opportunities, and the firm suggested that given PVH’s large exposure in apparel, the company may want to diversify into accessories, which they say could point to TPR or CPRI Hudson Bay (HBAYF) rises after Catalyst Capital Group, which owns about a 17.48% stake, offered to acquire the company for cash consideration of C$11 per share https://on.mktw.net/2QVrfxP ; CENT shares fell after mixed quarter as gross margin fell 180 bps Y/Y to 27.5% of sales while reports sales increased 7.7% to $541M in Q4, but EPS missed for Q4; UAA was upgraded to strong buy at Raymond James and $30 tgt as firm more comfortable with the company’s risk/return profile, particularly regarding execution risk and valuation

·     Industrial & Machinery; agricultural machinery/farm equipment sector pressured after DE reported slightly better Q4 top/bottom line but lowered year net income view to $2.7B-$3.1B from prior view $3.2B saying 2020 agriculture & turf equipment sales to fall -5% to -10% and sees 2020 construction & forestry equipment sales -10% to -15% (shares of AGCO, CAT, CNHI weak)

·     Software movers; ADSK posted a quarterly beat with tepid forecast as guided year revs $3.26B-$3.27B vs. est. $3.26B, while also forecast Q4 rev and adjusted profit below Street estimates; VMW shares moved back above its 200-day moving averages, rising after solid F3Q report with revenue growth holding at 13% CC and beating by 1.5% ex about $10M from CBLK and modestly raised its FY total rev outlook; VEEV shares pullback despite quarterly beat and raised guidance as Q subscription revs rose 27% YoY to $226.8M/raises year EPS to $2.16-$2.17 from $2.11-$2.13 (est. $2.12)/raises FY revenue to $1.09B from prior view $1.06B-$1.07B (est. $1.06B)

 

Stock GAINERS

·     AVX +35%; after top shareholder Kyocera Corp (has 72% stake) made a proposal to acquire all shares of AVX not already owned for $19.50 per share in cash

·     BMRN +3%; was upgraded to overweight at Barclays with $98 tgt citing favorable risk/reward from a likely positive data for the Phase 3 study of vosoritide, and better than expected commercial uptake for ValRox and vosoritide

·     BOX +8%; on Q3 results beat estimates as more customers joined its platform while also raises its full-year revenue forecast and Q3 results included a modest beat to calculated billings (+10% y/y).

·     CPRI +3%; along with gains in TPR after Citigroup said this morning could be potential tgts for PVH

·     GES +4%; after mixed Q3 earnings/forecast, which both featured better EPS but weak sales; guides year op margin view to 5.4%-5.6% from 5.3%-5.6% but slightly lowers year revs

·     MANU +13%; City Football Group announced earlier that private equity firm Silver Lake has signed a definitive agreement to make a $500M equity investment, equivalent to just over 10% of the company’s post-investment value. The deal values City Football Group at $4.8

·     UAA +7%; upgraded to strong buy at Raymond James and $30 tgt as firm more comfortable with the company’s risk/return profile, particularly regarding execution risk and valuation

·     VMW ; after solid F3Q report with revenue growth holding at 13% CC and beating by 1.5% ex about $10M from CBLK and modestly raised its FY total rev outlook

 

Stock LAGGARDS

·     BA -1%; after a report in the Seattle Times said Boeing’s 777X’s fuselage split dramatically during September stress test https://bit.ly/2ONXInc

·     CENT -18%; shares fell after mixed quarter as gross margin fell 180 bps Y/Y to 27.5% of sales while reports sales increased 7.7% to $541M in Q4, but EPS missed for Q4

·     DE -4%; reported slightly better Q4 top/bottom line but lowered year net income view to $2.7B-$3.1B from prior view $3.2B and delivered a cautious outlook attributed to trade tensions and slowing economy affecting the demand for agricultural and construction equipment

·     DELL -3%; after cutting year revenue guidance to $91.8B-$92.5B from $93B-$94.5B (est. $93.54B) and narrows FY20 adjusted EPS view to $7.25-$7.40 from $6.95-$7.40 due to component shortages from Intel

·     EVH -33%; said that its partner Passport Health Plan received notification from the Kentucky Cabinet for Health and Family Services (CHFS) that Passport has not been awarded a Kentucky managed Medicaid contract for the next contract period https://bit.ly/2ruB6Qv

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Content is provided by Hammerstone Inc., which has no affiliation with Regal Securities, Inc. (“Regal”) This commentary is provided for information purposes only, and is not a recommendation, offer or solicitation by Regal to buy or sell securities or to adopt any investment strategy. Regal has not participated in the creation of the Hammerstone content and does not directly or indirectly endorse the content. Any reliance on this material is at the sole discretion of the reader.

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